Trading in the market Forex correlation method

S-Morfey

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27.03.2018
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In this forum thread I would like to familiarize traders with a trading method based on correlation of currency pairs to hear the views of traders and learn what options trading based on the correlation used.

the Theme of the method is not new and information on the Internet enough, as there is a different interpretation of the ways of trading used to analyze trading tools and indicators. Opinions about the system, both positive and negative. So I will present this material in Konteks, as I understand it all, and on what basis to carry out his trade. The idea of trading this way is not mine, but I think deserves attention for its progress in life.



Correlation (from lat. correlatio) correlation — relationship between two or more random variables or values which is possible with some acceptable degree of accuracy considered as such. The gist of it is that changing the value of one variable is accompanied by systematic changes in the values of another. When correlation calculation is trying to determine whether there is a statistically relationship between two or more variables in one or more samples. The term correlation is found in our daily life too rarely, for example, the relationship between unemployment and the number of criminal offences, the relationship between height and weight of people, between experience and labor productivity, etc.

a Measure of the correlation of two random variables is correlation coefficient, which, in turn, can be both positive and negative.

correlation Coefficient takes values from -1 to +1. A positive value of the correlation coefficient indicates a positive Association, a negative the opposite. The larger the module the calculation result is, the stronger the magnitude of influence each other. A value of zero indicates no correlation, a value less than 0.5 indicates a weak, but otherwise - on a pronounced relationship.



<font face="Verdana]<font face="Verdana]In my case, to determine the correlation between the two instruments, taken the correlation coefficient of Pearson. the Calculation of this factor is implemented in the table.

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[/color]the table is divided into 2 units: direct and indirect rates (depending on the location of the U.S. dollar, in the numerator or the denominator).

We will be interested in the currencies over a long period of time between show a positive correlation, that occurs between the period when they will move the mirror (the sample is presented in the table).

the Figures in the table characterize the degree of similarity of one currency against another.

As already mentioned earlier, about the correlation coefficient, it takes values from "1" to "-1".

If the index is equal to:

- "1" or close to that value - this means that the new currency by move relatively synchronously;

- about the "0" means the currency have no relationship;

- "-1" or so - currencies moving mirror (asynchronous).



Quotes of the same type, most of them have correlation relationship with each other, if one quote increases, then the second (related) is also growing and Vice versa. Sometimes between currency pairs there is a phenomenon of "anticorrelation" - one currency begins to rise, and the other, which showed for a long period of time a positive correlation with the first falls. The phenomenon of "anticorrelation" is usually due to the release of news on any one of the currencies, the market response (due to different time zones), etc., Two currencies that had previously moved synchronously start to move in different directions (one increases, the other falls), but the phenomenon of "anticorrelation" can not last long, it was during this period we have the opportunity to make a profit.

Market entry
is the simultaneous placing of pairs of transactions in two currencies, i.e. go into a kind of hedge, we call it the "bundle". In conjunction one currency sell another buy. To determine which currency pair to sell and which to buy, you can use the different indicators. In my trading I use 2 indicators, and one of them determine the direction of setting the transactions in the bundle.



The first is the analogue available to all Internet resources indicator Multiinstrument:











 

S-Morfey

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27.03.2018
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the First is the analogue available to all Internet resources indicator Multiinstrument:







according to his figures it is not difficult to determine the direction of placing the transaction. Blue line is a visualization chart second currency pairs in the bundle. Accordingly, if the blue line is top to buy the tool, bottom tool sell.





<font size="2]<font face="Verdana]<font size="2]<font face="Verdana]the Second option determine the direction - indicator measure of relative discrepancy of the two currencies in the bundle (based on standard indicators Stochastic, RSI, CCI, WPR, DeMarker), I recommend it is better to take for analysis - RSI:





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What currency pairs indicator more, then sell it, less as buy.



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S-Morfey

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27.03.2018
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Basically, I wanted the whole article missed one post, if not I will fit on different posts, thank you.
 

S-Morfey

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27.03.2018
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Continue.

If you trade according to the method of correlation there is another important point: the hedge is taken simultaneously 2 currency pair, the price points and the volatility of these currencies different (currencies are different distance according to their price planes), so when placing chords you need to know what size you need to enter a second currency pair, ie, there is a need to balance the lot sizes of the two tools cords.

To calculate these parameters automatically, and help facilitate trade, I use the panel calculations.









to Sum up written by: lots of the currencies in the bundle should be "relatively" equal.
 

S-Morfey

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27.03.2018
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to Summarize this in the post above, and define entry criteria, in chronological order.



1. Define a measure of the "anticorrelation" (recommended range from "-70" to "-1").

2. Define a relative measure of divergence of two currency pairs RSI (recommended more than 20).

3. Set which currency pair to buy, what to sell.

4. Calculate your working lot, its size, it is recommended to divide into equal parts (preferably 5 or more, as you like). This part of the working lot will enter the market, the rest of the parts "fill in" in case after entering the currency pair continued to diverge.

5. Calculated lot size of the second currency pair future bundles given price points and volatility.

6. The entrance to the transaction is carried out simultaneously on two currency pairs in the hedge.

7. In the course of trade, a lot of the second instrument because of a change in prices and the volatility of the instruments will change periodically, so you will need to make the adjustment.



In the course of the trade there are three scenarios for price movement:



1. Currency pairs are towards each other (converge) - profit on both pairs.

2. Both currency pairs are moving up and the total profit on the two currencies due to the overlap of one currency loss for the other.

3. Both currency pairs are moving down, the total profit on the two currencies due to the overlap of one currency loss for the other.
 

S-Morfey

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27.03.2018
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okay, moving on.

the Manufacturing method is conducted in time frames from 15 minutes to an hour. Lower timeframe to take is not recommended due to the fact that firstly a lot of "noise", secondly the relatively small profit. Above time tayfreyma trade is possible, but then the transaction can drag on for quite a long period of time. For comparison, when trading on the hourly chart, on average the deals are in the market from a few days to a month.

Since I'm trading on MT5 have created for themselves a separate profile for correlation and led in it 4 timeframe: 15 minutes, 20, 30 and hour. Due to the increase in the number of tayfreymov, increasing thereby the number of signals to enter the market by the different tools, and most importantly increases the choice between them is more profitable. For example, You signal came from 15-minute chart that a possible market entry by ligaments USDJPY, USDCAD and USDJPY, USDMXN, You see a beautiful difference pairs, which is a bundle that the other signal parameters are identical in both cases. Who would You prefer? I would take in trade the ligament that when placing a hedge would give positive swaps in at least one currency pair, with the possibility of overlapping of the negative swaps on the other, if there is a situation where the swaps in both positive - it's all perfect. I don't want to say that this method is "afraid swaps", but in that situation when transactions remain in the market for a long time, due to the recruited negative swaps, you have to wait longer for the estimated profit, which is not very nice.
 

S-Morfey

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27.03.2018
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See that my topic does not interest the people, no questions, no criticism, no suggestions, absolutely no response.

Dear managers, on the theme of looking to continue makes no sense, although there are many developments in this direction, as well as the real nuances of the trade by this method which is not cool, every face, I ask You this to close the topic, so I see no reason to communicate with itself, thank you.
 

growex

New member
03.02.2012
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About like your methods here in the forum have pretty much published and has been discussed. The most vulnerable part of your trading strategy it is the indicator of where you are putting graphics on top of one another. The big problem here is the selection of stochastic trends with the aim of obtaining stationary on any parameter of the spread.

The correlation of exchange rates this method is distantly related, you probably are talking about cointegration. But I can assure you that considered cointegration, test, current regimes of volatility and build spreads in the Forex is the business in General is quite troublesome.

In addition, if you show up in their posts, the instruments used, but do not give them any references, it is initially not welcome.
 

S-Morfey

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27.03.2018
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The tools shown here are similar, which on the Internet resources abound in free access. Except for the panel calculations and tables, because it is paid content.

Here is a link to 2 of these indicator that can free download (Multitool and indicator 3D).
 

growex

New member
03.02.2012
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The essence of it boils down to the proper calculation of spread and beta, and only in this case the spread is stationary around a certain parameter. Again, this is not a rule but only a feature spread for a certain period of time, which may change at any time. Beta's are calculated entirely different methods, and Kalman, and simple regression...and many others. I don't know, maybe someone will need this panel calculations, your...but it is not clear why.
 

S-Morfey

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27.03.2018
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We're talking about completely different approaches to the method, sorry of course, but did You even read my article? Just calculate your lot size and is one of the most important criteria, because currency ligament significantly different price points and volatility. Spread calculation is not shown here, but relative Delta of divergence of the two pairs is measured by the indicator.

In this approach, exchange rate is regarded as a typical example of the time series that possesses the following properties:

- time series of absolute values;

- time series of multivariate type;

- according to a time parameter torque range;

- time series - revealstate;

- the type of data - random;

- the main trend - stationary.
 

S-Morfey

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27.03.2018
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Due to the fact that the entrance to the ligament is the opposite order, and thus to calculate the take profit levels separately for each instrument is not possible, similar to opening all orders of the ligaments close simultaneously total net profit two currency pairs. Otherwise, we lose the safety net of the hedge, which is unacceptable in this approach.

To calculate the approximate profit will consider 2 options:

1. Lot size currency pair * price of item * to measure the true range.

2. The value of the indicator "Multitool" (expressed in the mini - pips) * price of item * on the lot size of the first instrument, similar to the calculated profit value for the second tool. Then, display their average value and multiplied by 70%.



PS there are other options of calculation, had led what I use myself.
 

S-Morfey

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27.03.2018
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Fixed income in conjunction USDJPY-USDSEK on M20 timeframe, entry, 1, "refilling", 1 adjustment of the lot. The profit is fixed for all transactions.
 

S-Morfey

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27.03.2018
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Yesterday came in a bundle at USDNOK-USDJPY 15-minute time frame. Entrance, 4 "topping up", today, the bunch closed in automatic mode, at achievement of total profit 2 tools. Managed to record a video, will post later.
 

S-Morfey

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27.03.2018
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Missed the article one point.

Included in the bundle by the method of multiple lots. I.e., the entrance is not immediately work a whole lot, and divided into 5 equal parts, the remaining parts remain on the "topping up".

Thus at once solve several problems:

1. Reduces the load on the Deposit.

2. Decreases the time spent in a drawdown if the pair continued to disperse.

3. Each "it" seems to be more advantageous the entrance, almost at the extremes.

"Fill" usually when one of the currency pairs, indicator, ending the pulse (DPO indicator leaves the overbought/oversold).
 

S-Morfey

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27.03.2018
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Video support previous screenshot closing chords USDNOK-USDJPY.



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